Telefonica's acquisition of E-Plus gets final approval from Europe

Telefonica is to sell up to 30 percent of its the new combined network to Drillisch.

The European Commission has given its final sign-off on Telefonica's acquisition of KPN's German mobile network, E-Plus.

The €8.6bn deal, which would essentially fold E-Plus into Telefonica's German O2 network, is set to create one of Germany’s largest mobile networks by customer base.

"With the final clearance of the European Commission now granted, we are able to close the transaction soon, and create a leading digital telecommunication company in Germany," Markus Haas, Telefonica Deutschland's chief strategy officer, said in a statement.

To get the deal approved by the European Commission, Telefonica had to agree to initially sell 20 percent of the combined network’s capacity to Drillisch, a German mobile virtual network operator. Additionally, Drillisch is able to acquire a further 10 percent in the future.

When the deal was announced last July , it almost immediately began drawing the attention of regulatory authorities, both national and pan-European, who worried that consolidation in the market would limit competition. In a statement, the European Commission said that it "was concerned that the merger, in its original form, would have led to higher prices and reduced competition to the detriment of German consumers".

The concessions were seen as a way to restore competition, giving smaller network carriers the chance to balance the market. Before the concessions, the combined network would have accounted for about one third of Germany’s mobile market (with operators Deutsche Telekom and Vodafone each accounting for another third.)

A template for European mobile mergers?

For the past several years, European mobile network operators have been struggling with how to stay profitable in a hypercompetitive industry with frequent price wars. In this sense, Telefonica's acquisition of E-Plus might serve as something of a template for mobile network consolidation on the continent.

And in fact, the deal and its related concessions closely mirror a similar merger that recently closed in Ireland. There, Hong Kong-based Hutchison Whampoa's Irish mobile subsidiary acquired O2 Ireland from Telefonica, effectively reducing the number of mobile competitors in the country from four to three.

In a similar fashion to the Telefonica-E-Plus deal, the European Commission also required that Hutchison Whampoa sell up to 30 percent of the combined network to other carriers.

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